Today, we continue with our week-long series on surviving sudden unemployment
When you were furloughed, your company may have provided information about the benefits you have access to. If your company is continuing to pay part or all of your salary while you’re at home, that should be specified in the information you were given. Likewise, if you are not being paid, you may be able to access accrued vacation or sick pay. If you have company-provided healthcare, find out if your company will continue to pay your premiums while you are unemployed. (Otherwise, you will need to secure temporary health care coverage.)
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) eased restrictions for accessing retirement account funds. The new law allows workers who are financially impacted by the Coronavirus pandemic to cash out up to $100,000 of their 401(k) or IRA accounts. (Affected individuals are people who are diagnosed with COVID-19, their spouse or dependent. In addition, undiagnosed individuals can take a Coronavirus Related Distribution (CRD) if they suffered adverse financial consequences due to being quarantined, furloughed, laid off, having their hours reduced, or who were unable to work due to child care responsibilities due to the Coronavirus pandemic.)
The law waives the 10 percent early withdrawal penalties (if money is taken out before age 59-1/2) and gives qualifying individuals three years to replace what they took out or to pay the ordinary income taxes due on the distribution.
However, cashing money out of your retirement account is not recommended unless it’s a last resort, as you will be sacrificing long-term growth of this money.
If you are furloughed from your job, you may not have to immediately repay any outstanding 401(k) loans like you would if you lost your job. (If you leave your job under normal circumstances — whether by choice or if your position ends up being terminated if you are under 55, unless you repay the loan in full by tax day the following year, that loan becomes a distribution and you will pay a 10 percent early withdrawal penalty plus your ordinary income tax rate on that money.)
Note: If you had a previous loan against your 401(k), the CARES Act legislation does not apply to that loan.